Reader Feedback

Here’s an email from a reader taking the pro-buyback side:

“Microsoft has spent over $78 billion on share buybacks and the stock has done nothing but go down.”
That seems pretty misleading.
That means that MSFT bought back around 3B shares since 2006 (assuming $26/share). They now have about 8.65B shares outstanding. So if they had not bought back any shares and they had paid the money out in dividends instead, their 2010 earnings per share would have been only $1.75, instead of $2.36. As an owner of MSFT, this makes a BIG difference to me. And don’t you think the stock would be a lot lower today if earnings were only $1.75 per share?
Of course it would have been nice to get the dividend, but I hold MSFT in a taxable account, with a marginal tax rate approaching 25% (state and federal). So from my perspective I’d rather have MSFT buy back stock than pay dividends even if the stock was 30% overvalued! (Ignoring capital gains taxes, which I can probably defer almost forever). And of course I don’t think it is 30% overvalued, because then I would sell it, wouldn’t I. If I want to get some cash out of MSFT, I can always sell some shares.
(P.S. – still love the blog, but I really don’t get your antipathy to buybacks.)

Posted by on September 14th, 2010 at 4:29 pm


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